The term voluntary compliance means that each of us is responsible for filing a tax return when required, and for determining and paying the correct amount of tax. Fortunately, the vast majority of Americans recognizes their legal responsibility, and properly report and pay over their tax obligations.

The efforts of Criminal Investigation (CI) are directed at the portion of American taxpayers who willfully and intentionally violate their known legal duty of voluntarily filing income tax returns and/or paying the correct amount of income, employment, or excise taxes. These individuals pose a serious threat to tax administration and the American economy.

The General Fraud Program is Criminal Investigation's largest enforcement program encompassing a wide variety of investigations involving tax and money laundering crimes. This program includes investigations involving a broad spectrum of individuals and industries from all facets of the economy, from small business owners to self-employed to large corporations. General Fraud cases constitute the main component of CI's efforts to most directly influence taxpayer compliance with the Internal Revenue Code.

General Fraud is the program from which CI identifies emerging areas of non-compliance in both Legal Source Tax Crimes and Illegal Source Financial Crimes. These emerging areas are instrumental in ensuring CI is focusing resources to most effectively achieve our mission.

Legal Source Tax Crimes involve legal industries and legal occupations, and more specifically, legally earned income, in which the primary motive or purpose is the violation of tax statutes (United States Code Title 26 and Title 18, Sections 286, 287, and 371K). The Legal Source Tax Crimes Program also includes cases that threaten the tax system, for example frivolous filers/non-filers, unscrupulous return preparers and the Questionable Refund Program.

The Illegal Source Financial Crimes Program recognizes that illegal source proceeds, which are a part of the untaxed underground economy, are a threat to the voluntary tax compliance system. Failure to investigate these cases would erode public confidence in the tax system. Within the guidelines of the Illegal Source Financial Crimes Program, CI commits resources to those investigations that involve proceeds derived from illegal sources other than narcotics. This program encompasses all tax and tax-related violations (Title 26 and Title 18, Sections 286, 287, and 371K), as well as money laundering (Title 18, Sections 1956, 1957, and 371M) and currency violations (Title 31). Linked to the investigation of the criminal charges within this program is also the emphasis for the effective utilization of the forfeiture statutes to deprive individuals and organizations of illegally obtained assets.

FS-2005-8, January 2005

Return Preparer Fraud generally involves the preparation and filing of false income tax returns by preparers who claim inflated personal or business expenses, false deductions, unallowable credits or excessive exemptions on returns prepared for their clients. Preparers may also manipulate income figures to obtain fraudulent tax credits, such as the Earned Income Tax Credit.

In some situations, the client (taxpayer) may not have knowledge of the false expenses, deductions, exemptions and/or credits shown on their tax returns. However, when the IRS detects the false return, the taxpayer must pay the additional taxes and interest and may be subject to penalties and criminal prosecution.

The IRS Return Preparer Program focuses on enhancing compliance in the return-preparer community by investigating and referring criminal activity by return preparers to the Department of Justice for prosecution and/or asserting appropriate civil penalties against unscrupulous return preparers.

While most preparers provide excellent service to their clients, the IRS urges taxpayers to be very careful when choosing a tax preparer. You should be as careful as you would in choosing a doctor or a lawyer. It is important to know that even if someone else prepares your return, you are ultimately responsible for all the information on the tax return.

Helpful Hints When Choosing a Return Preparer

• Avoid tax preparers who claim they can obtain larger refunds than other preparers

• Avoid preparers who base their fee on a percentage of the amount of the refund.

• Use a reputable tax professional who signs your tax return and provides you with a copy for your records.

• Consider whether the individual or firm will be around to answer questions about the preparation of your tax return months, or even years, after the return has been filed.

• Review your return before you sign it and ask questions on entries you don't understand.

• No matter who prepares your tax return, you (the taxpayer) are ultimately responsible for all of the information on your tax return. Therefore, never sign a blank tax form.

• Find out the person’s credentials. Only attorneys, CPAs and enrolled agents can represent taxpayers before the IRS in all matters including audits, collection and appeals. Other return preparers may only represent taxpayers for audits of returns they actually prepared. (Additional text in italics added Feb. 4, 2005 .)

• Find out if the preparer is affiliated with a professional organization that provides its members with continuing education and resources and holds them to a code of ethics.

• Ask questions. Do you know anyone who has used the tax professional? Were they satisfied with the service they received?

IRS cautions taxpayers to be wary of claims by preparers offering larger refunds than other preparers. Check it out with a trusted tax professional or the IRS before getting involved.

Tax evasion is a risky crime, a felony, punishable by five years imprisonment and a $250,000 fine.

Criminal Investigation Statistical Information

*Incarceration may include prison time, home confinement, electronic monitoring, or a combination.

Criminal and Civil Legal Actions

The following case summaries are excerpts from public record documents on file in the court records in the judicial district in which the legal actions were filed.

Tax Preparer Sentenced to 33 Months
On Dec. 16, 2004 , in Hartford , Conn. , Patrick A. Triumph, a self-employed tax return preparer, was sentenced to 33 months in prison to be followed by three years supervised release. In July 2004, Triumph was indicted on 38 counts of aiding and abetting in the preparation of false tax returns, one count of interfering with the administration of IRS laws and one count of knowingly and willfully failing to appear in court when required. Triumph was found guilty by jury on Sept. 20, 2004 , on 10 counts of aiding and abetting in the preparation of false tax returns.

Court Bars South Florida Man From Selling Bogus Trusts and Preparing Federal Tax Returns for Others
On Dec. 3, 2004 , in Ft. Lauderdale, Fla., Louis Ratfield of Lake Worth, Fla., was permanently barred by a federal court from preparing federal income tax returns for others and from representing customers before the IRS .  Ratfield also was barred from selling a fraudulent tax scheme involving sham trusts.  According to papers filed in the case, Ratfield told customers they could use his trusts to get “tax deductions for the expenses incurred in being alive.”

Court Bars Ohio Men’s Fraudulent Tax Schemes
On Nov. 8, 2004 , in Akron, Ohio, James L. Binge and Terrence A. Bentivegna were permanently barred by a federal court from preparing income tax returns for customers and from representing customers before the IRS . The court found that the two Canton-area men prepared income tax returns that hid customers’ income and claimed improper deductions. They also sold sham trusts and falsely advised customers that they need not report income earned within the United States . Binge and Bentivegna were also barred from selling or promoting tax fraud schemes. 

Sacramento Tax Preparer Sentenced to 21 Months in Prison for False Tax Return Scheme
On Nov. 4, 2004 , in Sacramento, Calif., Brent Daniel Shaw was sentenced to 21 months in prison in connection with his participation in a scheme involving the filing of false returns with both the California Franchise Tax Board (FTB) and the Internal Revenue Service ( IRS ). Shaw pleaded guilty to mail fraud, aiding and assisting in the preparation of a false income tax return and forging endorsements on treasury checks. Shaw admitted that he would provide his tax return clients with a correct copy of their state and federal income tax returns, and then would alter the returns prior to actually sending them in to the FTB and the IRS . The returns Shaw submitted without the knowledge and consent of his clients included bogus deductions to reduce the taxpayers’ state and federal tax liability, which in turn caused the issuance of larger refunds than were actually due. Upon receipt of falsely inflated refund checks, which Shaw directed the IRS and FTB to mail directly back to him, Shaw would forge his clients’ signatures and personally deposit or cash the refund checks. Shaw then issued new checks to his clients for the amount of the refund they were led to believe they were getting. Shaw improperly kept the difference between the correct refund amount and the fraudulent and inflated refund amount. 

Irving , Texas , Tax Preparer Sentenced
On Oct. 21, 2004 in Irving , Texas , Leanne Denice Shrout was sentenced to 36 months in prison following her guilty plea in May 2004. Shrout, who operated Executive Financial Consultants, pleaded guilty to three counts of aiding and assisting in the preparation and presentation of a false and fraudulent tax return.

Shrout was a trained tax return preparer however, she would inaccurately and falsely advise and counsel her clients that the following things were deductible on the Schedule A form: personal clothing worn to work; personal hygiene items; vitamins; gym fees; haircuts; manicures and pedicures; mileage to and from work; and money spent at restaurants. Shrout also admitted she prepared amended tax returns for clients using basically the same methodology and claiming the taxpayer was owed more. She admitted to preparing at least 788 false tax returns or false amended tax returns approximately beginning in 1999 and continuing through June 2002.

Court Stops Fraudulent Tax-Return Preparer
On Oct. 19, 2004 , in Norfolk , Va. , Ronald M. Green was permanently barred by a federal court from preparing federal income tax returns for others and representing people before the IRS .  The court found that Green had prepared fraudulent tax returns for customers in Virginia , Maryland , Pennsylvania , New York , South Carolina , Alabama , Texas , Arizona and California . 

Hamden Tax Preparer Sentenced to Four-Year Federal Prison Term
On Oct. 13, 2004 , in New Haven, Conn., John K. Cannon was sentenced to 48 months in prison followed by one year of supervised release for assisting clients of his tax preparation business with filing materially false federal income tax returns and for failing to file his own federal income tax return for the 2001 calendar year. Cannon was also ordered to pay all back taxes with any penalties and interest and accepted a permanent injunction that will bar him from engaging in the business of preparing income tax returns or from further acting as an income tax preparer in the future. Cannon, who had been self-employed as a tax preparer for approximately 40 years, admitted that between 1999 and 2001, he willfully prepared hundreds of federal income tax returns in which he falsely represented that his clients were lawfully entitled to claim itemized deductions, business expenses, rental expenses and other deductions to which they were not entitled. Cannon also acknowledged that he intentionally sought to interfere with the Internal Revenue Service's ability to investigate and audit his preparation of those returns and that as a result of his actions he deprived the IRS of nearly $1 million in tax revenue. Cannon further admitted that he willfully failed to file his own income tax return for the calendar year 2001, as required by law, despite earning more than $250,000 from his tax preparation business that year.

Internal Revenue Code

IRS has sole investigative jurisdiction for criminal violations of the Internal Revenue Code (IRC), Title 26 of the United States Code. The IRC, Section 61(a) defines gross income as ". . . all income from whatever source derived." This has been held by the courts to include income earned from illegal activities such as drug trafficking, embezzlement, extortion, healthcare fraud, bankruptcy fraud and numerous other crimes. The primary criminal statutes include evasion of income tax, false income tax returns, and failure to file tax returns, among others.

Additionally, IRC, Section 6050 I, requires anyone involved in a trade or business, except financial institutions, to report currency received for goods or services in excess of $10,000 on a Form 8300. This requirement has created a significant impediment to the use of illicit profits by narcotics traffickers and others engaged in illegal activity for the purchase of luxury items such as vehicles, jewelry and boats. Financial institutions report similar information on a Currency Transaction Report.

Federal Statutes and Acts Passed by Congress

Title 31, USC Section 5331 – was passed in 2001 as a result of the USA Patriot Act and duplicates the reporting provisions of IRC, Section 6050I (Form 8300). Dual reporting of this information will now be made to both the IRS and the Treasury Department's Financial Crimes Enforcement Network (FinCEN).

Title 31 USC Section 5332 –Also as a result of the USA Patriot Act was the passage of Title 31 USC 5332, Bulk Cash Statute. Criminal Investigation has jurisdiction to investigate violations of this statute. This affects anyone who transports or attempts to transport currency or other monetary instruments of more than $10,000, from a place within the United States to a place outside of the United States, or from a place outside the United States to a place within the United States, and knowingly conceals it with the intent to evade the reporting requirements of 31 USC 5316. 

Title 18 USC Section 1960 – IRS has the jurisdiction to investigate violations under Title 18 USC 1960 which requires Money Service Businesses to be registered with the Federal Government.

Bank Secrecy Act – The Currency and Foreign Transactions Reporting Act, Public Law No. 91-508, Title II, along with financial institution record-keeping requirements, became known as the Bank Secrecy Act (BSA). The BSA mandates the reporting of certain currency transactions conducted with a financial institution, (Form 4789), the disclosure of foreign bank accounts (TD F 90-22.1), and the reporting of the transportation of currency exceeding $10,000 across United States borders (Form 4790).

Money Laundering Control Act of 1986 – Criminal Investigation investigates and recommends criminal prosecution for violations of Title 18, USC , Sections 1956 and 1957. These statutes make it illegal to conduct certain financial transactions with proceeds generated through specified unlawful activities, such as narcotics trafficking, Medicare fraud and embezzlement, among others.

Asset Forfeiture – The asset forfeiture program is one of the federal government’s most effective tools against drug trafficking, money laundering, and organized crime. In conjunction with other federal, state, and local law enforcement agencies, Criminal Investigation uses asset forfeiture statutes to dismantle criminal enterprises by seizing and forfeiting their assets. Most of Criminal Investigation's seizures and forfeitures are the result of Title 18 and Title 31 money laundering and currency investigations.